Little positive about negative gearing

NEGATIVE gearing was already on the nose when ''Kochie'' delivered his verdict.

Property manager Eddie Kutner of Central Equity Ltd had just finished putting the case for the rule that allows investors to write off losses made on rental properties against other income before selling the property and pocketing a capital gain taxed at only half their marginal rate.

It was "a responsible part of providing accommodation, a very defensible proposition".

David Koch, the finance journalist and Sunrise host, was at the summit as a community representative.

"Negative gearing on an unproductive asset? Does it just go on for time immemorial or is it time to actually put some limits on it - to say, OK for the first five years, but if it's not producing an income after that why are you there?

"It's done purely for the attraction of letting the taxman pay half. I'm not saying get rid of it all together, but there's got to be a limit - it just can't go on forever."

Mr Australia had spoken. No one returned to the topic.

Earlier the Grattan Institute economist, Saul Eslake, turned the Prime Minister, Julia Gillard, and the Treasurer, Wayne Swan, stony-faced when he said the practice transferred $4.5 billion per year from ordinary taxpayers to affluent ones.

"There are now 1.7 million of them, and they vote," he added. "Which is why the subject is off the agenda for both major political parties."

It was not true that the brief suspension of the practice by former treasurer Paul Keating in the mid-1980s led to a surge in rents. Nine out of 10 negative-geared properties were existing units or houses rather than new ones. Rather than boost the supply of properties negative gearing pushed up the price of existing ones.

"The US has never had negative gearing yet they have never had a rental vacancy rate of less than 5 per cent. We have negative gearing and we have never had a vacancy rate in rental properties of over 5 per cent," Mr Eslake said.